Barrett Business Services, Inc. ( BBSI)

Q4 2010 Earnings Call

February 10, 2011 12:00 pm ET


Jim Miller - CFO

Mike Elich - Interim President and CEO

Tony Meeker - Chairman


Josh Vogel - Sidoti & Company

Jason Harris - Gartner



At this time, I would like to welcome everyone to the Barrett Business Service earnings release. (Operator Instructions) Thank you. Mr. Jim Miller, please go ahead.

Jim Miller

Thank you. Good morning, this is Jim Miller. Joining me today on the call are Mike Elich and Tony Meeker. Today, we will provide you with our comments regarding the company's operating results for the recently completed fourth quarter ended December 31st and our outlook for the first quarter of 2011. At the conclusion of our comments, we'll open the call up for questions.

Our remarks during today's conference call may include forward-looking statements. These statements along with other information presented that are not historical facts are subject to a number of risks and uncertainties. Actual results may differ materially from those implied by the forward-looking statements.

Please refer to our recent earnings release and to our quarterly and annual reports filed with the Securities & Exchange Commission for more information about the risks and uncertainties that could cause actual results to differ. Page one of yesterday's earnings release reflecting our operating results summarizes the company's revenues and cost of revenues on a net revenue basis as required by Generally Accepted Accounting Principles.

Most of our comments today, however, will be based upon gross revenues and various relationships to gross revenues, as management believes such information is more informative as to the level of our business activity, more useful in managing and analyzing our operations and adds more transparency to the trends within our business. Comments related to gross revenues as compared to a net revenue basis of reporting have no effect on gross margin dollars, SG&A expenses or net income.

Turning now to the fourth quarter results, as reported the company earned $0.31 per diluted share in the 2010 fourth quarter as compared to $0.21 per diluted share for the fourth quarter of 2009. Total gross revenues for the 2010 fourth quarter of $344.2 million increased $73.4 million or 27.1% over the 2009 fourth quarter.

The $344.2 million represents a new quarterly high for gross revenues. California, which comprised approximately 82% of our overall fourth quarter gross revenues, increased 31.2% owing to continued growth in PEO business.

Staffing revenues for the fourth quarter of 2010 increased $1.8 or 5.9% over the fourth quarter of 2009, primarily due to an increase in demand from our staffing services from existing customers, as new staffing business during the quarter approximately offset the loss of business from former customers.

PEO gross revenues increased $71.6 million or 29.9% on a quarter-over-quarter basis, primarily due to the addition of new customers. Our new PEO business during the quarter from customers added since January 1, 2010 more than double the amount of loss PEO business from the fourth quarter of 2009 from former customers.

Our PEO revenues from existing customers also experienced a moderate increase on a quarter-over-quarter basis. The increase in PEO revenues from existing customers represents the third consecutive quarter of existing customer growth.

Gross margin dollars for the 2010 fourth quarter of $13.6 million increased approximately $1.6 million over the 2009 fourth quarter primarily due to the increase in revenues. Gross margin percent on a gross revenue basis was 4% for the 2010 fourth quarter as compared to 4.4% for the 2009 fourth quarter, primarily due to higher direct payroll cost and higher workers compensation cost as a percentage of revenues.

Direct payroll cost increased 36 basis points over the 2009 fourth quarter, primarily due to an increase in our mix of PEO services, which typically have a higher payroll cost component than staffing services. Payroll taxes and benefits for the 2010 fourth quarter as a percentage of gross revenues decreased slightly from approximately 7.3% to 7.2%, primarily as a result from the effect of company changing to client specific state unemployment wage reporting in California for all of our PEO clients, which was effective January 1, 2010.

Workers compensation expense for the fourth quarter of 2010 as a percentage of gross revenues increased from 3.3% to 3.5%, primarily due to an increase in self-insured claim cost particularly in California, as a result of an increase in overall projected severity of the 2010 claims.

Selling, general and administrative or SG&A expenses of $9.6 million increased $953,000 or 11% over the 2009 fourth quarter. This increase was primarily due to increased profit sharing and related taxes resulting from increased branch profitability.

Other income net for the 2010 fourth quarter totaled $758,000 primarily due to gains recognized in the sale of certain corporate bonds as well as investment income earned on the company's cash and marketable securities. The income tax rate for the fourth quarter of 2010 was 28.2%, which included a favorable benefit from the reduction through deferred tax assets allowance, as sales of certain corporate bonds during the quarter generated previously unanticipated gains.

Turning now to the balance sheet at December 31st, cash and marketable securities totaled $55.4 million compared to $50.4 million at December 31, 2009. The increase was primarily due to cash generated from operations of $7.4 million and increase in payroll related accruals was $7.3 million. These were offset by $6.1 million used to capitalize our wholly owned fully licensed insurance company in Arizona, in early 2010. As well as to $3.4 million in share repurchases of the company's common stock and payment of quarterly cash dividends totaling another $3.4 million in 2010.

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